Monetary Policy

Discipline: Economics

Monetary Policy involves the use of a set of measures in an effort to ensure the stability and the optimal growth of an economy.

Central banks control the money supply and the interest rates, and determine a certain level for each of these measures to help produce the intended results.

Monetary Policy can be expansionary or contractionary:

An Expansionary Monetary Policy refers to an increase in the money supply and a decrease in interest rates in an effort to lower the unemployment rate and increase economic growth.

A Contractionary Monetary Policy, on the other hand, refers to an increase in the interest rates in an effort to prevent inflation.

Also see: budget deficit, budget surplus, fiscal policy, inflation, interest rate, government spending, money supply, seignorate, taxation

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